Operational Workflows & State Machines

The Subcontracting domain defines explicit workflows and state machines to ensure that every order, dispatch, and receipt moves through a controlled, auditable lifecycle from authorization to cost settlement.

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1. Subcontracting Order Creation & Approval

flowchart LR
    A[Service PO / Procurement Commitment] --> B[Create SCO]
    B --> C[Select Approved BOM]
    C --> D[Populate Yield & Conversion Rates]
    D --> E{Approve SCO?}
    E -->|Yes| F[SCO Confirmed]
    E -->|No| G[SCO Rejected]
    F --> H[Component Dispatch Planning]

Stage	Business Responsibility
Service PO / Procurement Commitment	Procurement issues the commercial commitment to the subcontractor for processing services.
Create SCO	Operations creates the operational order, linking the service PO and selecting the subcontractor.
Select Approved BOM	The approved, versioned BOM for the finished SKU is attached and frozen on the SCO.
Populate Yield & Conversion Rates	Planned input quantities per finished unit are captured, including expected scrap.
Approve SCO	The order is routed through an approval matrix based on value, material exposure, and subcontractor risk.
SCO Confirmed	The order becomes binding for component dispatch and finished-goods receipt.

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2. Raw Component Transfer to Subcontractor Location

flowchart LR
    A[SCO Confirmed] --> B[Reserve Components]
    B --> C[Create Transfer Note]
    C --> D[Physical Shipment]
    D --> E[Subcontractor Acknowledges Receipt]
    E --> F[Components in Virtual Location]

Stage	Business Responsibility
Reserve Components	Inventory/WMS reserves the required component quantities against the SCO in the source warehouse.
Create Transfer Note	A Component Transfer Note is generated to record the internal custody movement.
Physical Shipment	Components are physically shipped to the subcontractor, with carrier tracking and documentation.
Subcontractor Acknowledges Receipt	The subcontractor confirms physical receipt; the principal updates the virtual location balance.
Components in Virtual Location	Components are now available for backflushing when finished goods are received.

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3. Finished Goods Receipt, Inspection & Backflushing

flowchart TB
    A[Finished Goods Arrive] --> B[Create Subcontracting GRN]
    B --> C[Quality Inspection]
    C --> D{Acceptable?}
    D -->|Yes| E[Accept into Quarantine]
    D -->|No| F[Reject / Return to Subcontractor]
    E --> G[Confirm Receipt]
    G --> H[Backflush Components]
    H --> I[Capitalize Costs]
    I --> J[Move to Sellable Stock]

Stage	Business Responsibility
Finished Goods Arrive	The subcontractor delivers finished output to the principal or designated inbound location.
Create Subcontracting GRN	Operations initiates a receiving document linked to the SCO.
Quality Inspection	Quality teams inspect physical output against specifications, sampling plans, and certificates.
Acceptable	Conforming output is accepted into quarantine pending final release.
Reject / Return	Non-conforming output is rejected, documented, and returned or scrapped per agreement.
Confirm Receipt	The accepted quantity is confirmed and locked for backflushing.
Backflush Components	Component quantities are automatically deducted from the subcontractor virtual location per BOM.
Capitalize Costs	Material value and tolling fees are combined into the finished inventory cost.
Move to Sellable Stock	After quarantine release, finished goods become available for sales or internal use.

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4. Cost Settlement & Vendor Service Invoice Clearing

flowchart LR
    A[SubcontractProductionCompleted] --> B[Procurement Receives Completion Evidence]
    B --> C[Capture Vendor Service Bill]
    C --> D{Match Bill to SCO?}
    D -->|Yes| E[Approve for Payment]
    D -->|No| F[Discrepancy Workflow]
    F -->|Resolved| E
    F -->|Rejected| G[Debit Note / Dispute]

Stage	Business Responsibility
Completion Evidence	Subcontracting emits the production completion event with quantities and service references.
Capture Vendor Service Bill	Procurement records the subcontractor’s invoice for tolling, setup, and ancillary services.
Match Bill to SCO	Quantities and rates are matched against the SCO and accepted GRN within tolerance.
Approve for Payment	The matched bill is approved and passed to Treasury for settlement.
Discrepancy Workflow	Rate or quantity mismatches trigger renegotiation, debit note, or dispute resolution.

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5. State Transition Tables

Subcontracting Order (SCO)

Current State	Trigger / Event	Next State	Business Validation Rule
Draft	Select approved BOM and subcontractor	Pending BOM Lock	BOM is approved and versioned; subcontractor is qualified.
Pending BOM Lock	Confirm BOM and yield rates	Pending Approval	Conversion ratios are populated and within tolerance.
Pending Approval	Approver approves	Confirmed	Approval tier matches SCO value and material exposure.
Pending Approval	Approver rejects	Rejected	Rejection reason is mandatory.
Confirmed	Components fully dispatched	Ready for Receipt	Required component balances exist in subcontractor virtual location.
Ready for Receipt	Partial GRN accepted	Partially Received	Accepted quantity is within SCO tolerance and component balances are sufficient.
Partially Received	Additional GRN accepted	Partially Received / Fully Received	Cumulative received quantity does not exceed SCO quantity plus tolerance.
Partially Received	Final GRN accepted	Fully Received	Cumulative accepted quantity equals or exceeds planned SCO quantity within tolerance.
Fully Received	Vendor bill matched and settled	Closed	All variances resolved and no open commitments remain.
Confirmed / Ready for Receipt	Cancel	Cancelled	No components have been dispatched, or a formal return is completed.

Component Transfer Note / Dispatch

Current State	Trigger / Event	Next State	Business Validation Rule
Draft	Select SCO and source warehouse	Pending Shipment	Source warehouse has sufficient available balance.
Pending Shipment	Goods physically loaded	In Transit	Shipment carrier and tracking reference are recorded.
In Transit	Subcontractor acknowledges receipt	Received	Acknowledged quantities are within tolerance of dispatched quantities.
Received	Inventory/WMS updates virtual location	Completed	Virtual location balance is incremented by accepted quantity.
In Transit	Shipment lost or damaged	Discrepancy	Variance reason and scrap/claim documentation are captured.
Discrepancy	Claim resolved or replacement dispatched	Completed / Cancelled	Adjusted quantity is reconciled or SCO is amended.